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Chidambaram warns of harsher regulation for errant companies

Finance Minister Palaniappan Chidambaram has asked India's business sector to evolve a transparent policy and greater disclosure norms in each area of their activities based on the concepts of self regulation and external regulation.

Addressing a national seminar on the draft Companies Bill organised by the Federation of Indian Chambers of Commerce and Industry in Bombay on Friday, Chidambaram said, "We had neglected this issue in the last 40 years. Now these have become imperative to adopt in the light of considerable growth in the number of companies getting registered with the local authorities."

The minister said about 5,000 companies are registered every month with the registrar of companies and there was no way the authorities could regulate these companies effectively. Several companies, he said, do not file returns regularly "and this cannot be allowed any further."

The minister therefore emphasised the need to evolve a good self regulation mechanism in the proposed Companies Bill so that external regulatory pressures are reduced gradually on the companies with a record of good disclosure norms. If a firm does not follow greater disclosure norms under the proposed Bill, he warned it would be put under harsh and touch regulatory pressure in the future.

Chidambaram said the finance ministry was in the process of collecting views and suggestions from various professional bodies, individual experts in taxation and law and industrialists before finalising the draft Companies Bill. The Bill will be placed before Parliament in the monsoon session.

If all goes well, he said, India will see a new Companies Bill effective from April 1, 1998. The basic objective of the Bill would be to adopt a modern code of conduct for professionals who need to earn a place in the corporate sector through competence and greater accountability. The Bill, he added, will also encourage the growth of joint stock companies who are considered vehicles of economic growth the world over.

The government did not want to intervene or participate in the operation and status of a firm, Chidambaram said, adding that the Bill will provide greater simplification in the rules and law for self governance of companies with higher responsibility.

The new Bill, Chidambaram revealed, would look at classifying companies at various grades based on their performance and accordingly regulate the companies to enter the capital market for raising resources and inviting public deposits.

The minister also indicated that in the changing corporate world, it would be impossible to run family-owned companies without the help of professional managers. Professional management, he felt, is essential not only to run the companies but also to fix greater accountability to the large number of shareholders, regulatory authorities and other organisations.